Why doctors complain: A history of physician income

We’re not going for sympathy here. Doctors as a whole enjoy less sympathy than many other professional groups (members of Congress enjoy the least, I would think), and that’s probably appropriate. They have high incomes and many prerogatives and rank highly in esteem polls as individuals, if not as a group. It’s not where they are that is causing the grieving, it is where they are coming from.

Let’s deal with the elephant: money. We can begin there because it is so obvious.

While a comprehensive history of physician income is beyond the reach of this blog, it is fair to say that from the early to mid-twentieth century, being a doctor meant earning a solidly middle class income. There were disparities, then as now, between the uptown, high society specialist and the rural, payment-in-kind GP, but all were at least comfortable, and the more entrepreneurial built their own hospitals and/or manufactured their own patent medicines. Their fees were a matter of personal discretion and could vary without constraint, except for the patient’s ability to pay.

In the Roosevelt administration, wage and price controls were imposed, and employers were prohibited from or at least restrained in the raises and other incentives they could offer employees. Health care insurance benefits were somehow excluded from that restraint and, moreover, those benefits were not subject to taxation. This produced a sharp upsurge in employer-provided health insurance, and those benefits soon became very generous. For the first couple of decades, insurers paid doctors whatever they charged. This had a dramatic effect on the number of people who could seek physician services and the amount of money a doctor could make from each of those patients, a powerful multiplier.

In the mid-1960’s, Medicare began. It was modeled mainly on the contemporary private insurance plans, and the impact on physician income was enormous. For decades, physician income had tracked cost of living increases very closely. Employer provided insurance plans produced a significantly higher rate of growth, and Medicare blew the walls out. Private practice physicians experienced raw collection rates (without discount or fee schedule negotiation) of 98%. Doctors who were no more than ordinary in ability could, if sufficiently affable and available for their referring colleagues, realize incomes that vaulted them into the highest percentiles. Doctors suddenly had the wherewithal to invest heavily in the stock market and shopping centers, to buy airplanes and island retreats, and the health sector was mainly immune to cyclic contractions in the general economy. Just because “rich doctor” was a new phenomenon does not mean that it was not embraced as the just and proper standard and expectation. It became a redundancy.

Then things changed. Spiraling costs prompted controls on physician reimbursement, and doctors have experienced income reductions in real, inflation-adjusted dollars, and all that preceded the Great Recession. A colleague joined his father’s surgical practice. He was disposing of some records after his father’s death around 2000, and he came across what Blue Cross paid his father for gallbladder surgery in the 1980’s. It was about 150% more that BC was paying my colleague in 2000, and that’s not even adjusting for inflation. Since inflation in the costs of running a medical practice is higher than the general inflation rate, that reduction in real income is substantial.

Do doctors still make a good living? Absolutely. But they are now lagging rather than leading their college classmates who chose finance, business, and other pursuits, and they have incurred six figure education debts in the process.

Why doctors complain: A history of physician income 11 comments

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http://twitter.com/CrushTheLeft Rules4FreeRadicals

Doctors are deer in the headlights, utterly clueless how effectively the government will soon destroy their practices.
I just got back from Spain, where physician unemployment and underemployment are rampant. Wait until ObamaCare’s vast cutbacks in Medicare kick in. Wait until 1/3 of hospitals close their doors in the near future.
My only advice is to cut your lifestyle and financially batten down the hatches. Its going to be a bumpy ride.

http://www.facebook.com/profile.php?id=571951486 Dennis Shea

At some point physicians need to realize that they can’t just make crap up. Sure, there are people in finance, business and other fields who make more than doctors. Sure, real prices for some services have dropped. But, the average physician makes FAR more than the average person in those other fields (http://www.bls.gov/oes/current/oes_nat.htm#13-0000). And, there’s very little else that’s more accurate than that in this essay.

By the mid-20th century–1950 to be exact–the average physician earned almost three times as much as the average American household–that’s not middle class by any stretch of anyone’s imagination. And while there have periods of rise and fall in real physician incomes, in 2011 the average physician income was still just about 3 times the average American household income–physicians have suffered and succeeded no more or no less than the rest of Americans.

So, they have no more reason to complain than anyone else.

Close Call

I think the key to put this into context is the debt incurred and time spent in training:

$145,000 in average debt for U.S. med school graduates.
Minimum 4 years of undergrad, 4 years of med school, 3 years of residency. Opportunity cost of at least 11 years of training and 3 of those years getting paid less than minimum wage (residency).

There’s a great paper (http://www.ncbi.nlm.nih.gov/pubmed/21617506) talking about the history of medical school debt starting from the 1960s. While med school debt shows the same general trend that undergrad higher education has shown over the past 50 years (increase in financing of education by loans and less by private or familial funding), the effect has been amplified for physicians.

I can’t think of another profession that has this burden of loan repayment, doesn’t start making above minimum wage until their early 30s, AND has the potential to be sued for virtually anything they do in that profession for the rest of their working life.

All good reasons to complain and advocate for improvement.

http://www.facebook.com/people/John-Wickenden/729562456 John Wickenden

So….
They do the same undergrad as everyone else….they get paid during residency when they are still being “brought on”. How much more is their debt than the average doctoral postgrad? Double? So they have $70k extra to pay. Amortize that over a career and it comes to a couple of thou a year.
In return for putting in a couple of extra….hopefully enjoyable….years and the extra bit of debt they get the wonderful opportunity to help their fellow man and get the respect they deserve for doing so.
I don’t know if you’re a physician, Close Call. If you are perhaps you should consider a change. Your heart’s not in it….

Close Call

To a lot of people, including physicians in training, $70k of debt with interest is not a trivial amount of money.
And I can’t think of any other doctoral program where they are at risk of being sued just for showing up to work.

I think all physicians should advocate for improvements in how medical education is financed. Otherwise you’re going to end up with only the rich being able to have the privilege of practicing medicine.

http://www.mywhitecoatisonfire.com/ Lumi St. Claire

You make some good points, but it’s not realistic to think that an extra $70,000 amounts to “a couple of thou a year”. That’s just the principal. There’s a small matter of compounding interest. I agree with Close Call – $70k is nothing to sneeze at, especially when you can estimate quadruple that when compounded with interest amortized over a traditional 30 to 35 year payback.

And physicians having to be realistic about the enormous amounts of money they owe at the end of their training does not automatically mean their hearts are not in it. Although it can certainly be a contributing factor to a crushed career.

http://www.facebook.com/profile.php?id=614010948 Earl Smith

This blog should be mandatory reading for all Pre-Meds…

http://twitter.com/accelmed Zen Chu

I’ve been working closely with doctors across specialties for over 20 years and they fall into two camps, those who went for the mission and those that hadn’t done enough introspection about what they really wanted for a career. The opportunities for careers outside of clinical practice are vast and there has never been a better time to create scalable high quality medicine, and extend it to as much of the world as possible.

realitycheck

I have no pity for physicians. if you don’t like it, go to law school.

DrJade.ed

It seems fitting to quote a statement included in the postscript of every financial statement: “Past performance is no guarantee of future results”
If an individual chose to enter the medical profession in the last decade with the explicit intent of making the income levels of the past generation… guess who is to blame… maybe said individual wasn’t as smart as they led themselves to believe
Medicine is back to being a service not a business and incomes are getting back in line with other Western countries.

Boo Hoo

http://euonymous.wordpress.com euonymous

While much of what you say is likely true, in the 1980’s wasn’t that gall bladder surgery your friend’s dad did an open procedure and isn’t the one your friend just did an MIS procedure? Isn’t that the point of evolving medical technology… decreasing costs? Now I’m not unsympathetic (some of my best friends are doctors), but until and unless this country moves to universal healthcare, things will get much worse for both doctors and patients. In case you missed it, it’s the insurance companies making the money these days and pretty much dictating what you get paid.